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Inside America’s cannabis industry

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The rise of the legal cannabis industry is one of the most exciting entrepreneurial stories to emerge in years, with the sector currently experiencing exponential growth and sprouting a slew of new businesses that showcase genuine innovation. To get a better understanding of what life in the industry is like, as well as what the future holds, I travelled to Colorado to meet some of the industry's main players...

In 2015 Colorado citizens spent, incredibly, almost a billion dollars on marijuana based products. The total figure of $996,184,788 meant that the state collected more than $135 million in way of taxes against these sales. Alongside the various moral and health related arguments used to get Amendment 64 passed in November 2012, was the capacity for this substantial new tax stream to do a lot of good. As such the state is now beginning to benefit from improved schooling, better law enforcement and extra funding for organisations trying to help people overcome serious drug addictions.

Yet while increased financial support in these areas is an irrefutable positive, there’s seemingly still a belief among some that the cultural and legal relationship that many people share with the cannabis industry is still a work in progress. Thankfully, there are plenty of people on hand to help the state in its quest to iron out those creases.

"Colorado is a leading example of how to regulate marijuana, as well as providing funding in novel ways to incredibly important programs like substance abuse treatment, which is always underfunded," notes Brian Vicente, a partner at Vicente Sederberg, an organisation that Rolling Stone describes as "the country’s first powerhouse marijuana law firm".

Having been instrumental in the passing of Amendment 64 Vicente Sederberg has won much acclaim, and it was the sight of one of the team at work which first greeted me as I made my way into what has to be one of the most exciting buildings in the entire industry.

Attorney at law Joshua D. Kappel was in full flow in the main room at CanopyBoulder, with an attentive audience taking notes, as he ran through his presentation on the legal minefield of running a business in the industry. Based in the small, picturesque city of Boulder, CanopyBoulder is the world’s first accelerator for cannabis industry based start-ups. As the latest cohort of entrepreneurs took in the guest lecture, I sat down with co-founder Patrick Rea.

Budding entrepreneurs

"It started by us looking at what opportunities there were in the cannabis industry, we did a year of due diligence and assessed what problems there were for us to solve," explains Rea. "A business accelerator seemed like a great solution for a big problem the industry has – a lack of investment worthy businesses. There’s no shortage of 'budding entrepreneurs' but there is a lack of qualified teams who are ready for investment. The product is the entrepreneur and the customer is the investor, we’re here to eliminate the friction between the two."

Image credit: Patrick Rea

For a $20,000 investment CanopyBoulder will take a six to nine per cent stake, inviting start-ups to relocate to Boulder for a 16 week business bootcamp which will see products developed, pitches practiced, concepts proven and access to investors granted. So what sort of entrepreneurs does Rea (pictured) usually see come through the doors of CanopyBoulder?

"You’re getting a lot more established entrepreneurs wanting to be a part of this, they have years of business experience but don’t understand the cannabis industry so can’t move fast. We help them make the right contacts, find a team and grow at speed.

"Then you have people who have identified a particular opportunity that they are uniquely qualified to capitalise on, but they haven’t really done it before. So with those people it’s a case of rounding out their skill sets and almost get them a micro MBA – it’s intense stuff."

There’s no doubt that there are already some big players in the industry, and not just in the form of growers or dispensaries. A fine example of this is MassRoots, a platform for cannabist enthusiasts which has been dubbed 'Instagram for weed'. With over 750,000 active users and some serious investment behind it, MassRoots is one of many businesses experiencing rapid growth. While the early involvement of high profile names such as Willie Nelson (Willie’s Reserve) and the Bob Marley family (Marley Naturals) demonstrates the widespread appeal of the industry.

Lack of big business involvement

Yet one of the key reasons why the industry is proving to be such fertile ground for entrepreneurs at this moment in time is the lack of involvement from large corporations. Despite many big businesses in the tobacco, alcohol and food sectors looking into opportunities, nobody has publicly announced an intention to make the cross over.

"Each state has a different legal framework, so when a business is looking at a product-market fit they don’t have to just think about one market – it’s 23 different markets across 23 states," notes Rea. "Another thing that’s unique to the industry is the stigma, the prejudice and the ever-changing laws. Laws evolve every day and that is a positive as well as a negative. The stigma attached to the industry is still there but it’s changing, the internet has allowed data to flow which disproves common concerns. Just look at traffic fatalities, it was argued these would go up – they didn’t. People also thought there would be a spike in use from teenagers, that didn’t happen either. The data has been crucial in the shift in opinion."

One entrepreneur who is uniquely placed to offer insight into both the data and stigma surrounding the industry is Roy Bingham, founder of Boulder-based BDS analytics. Having run a successful data analytics business in the health food industry the serial entrepreneur saw the opportunities being thrown up by the cannabis industry, but was unsure if making them move would be a wise one.

Image credit: Roy Bingham

An entrepreneur’s reputation

"I went to a cannabis industry event in New York about three years ago as someone had told me I needed to pay attention to what was happening, but I was very happy running another business and wasn’t really giving it any thought. Then at the event, which was relatively small scale and almost under the table, I saw a lot of entrepreneurs I recognised – all keeping a low profile. It made me think that something big was coming; there was clearly a lot of interest.

"Up until then I had had a fairly uncontroversial career and hadn’t worked in any questionable industries. It took me a while to overcome the fears surrounding what it would mean to my reputation, as well as if I would be legally compromised at all."

After weighing up the pros and cons Bingham decided to go for it, relocating to Colorado ("it’s clearly the epicentre, you need to be here") and building a business which now provides data insight into consumer buying trends for hundreds of dispensaries across Colorado, Washington and Oregon.

"People used to go into stores and ask the bartenders what they would advise purchasing, now they have a far better idea what they want as there’s branding and marketing going on. So if someone comes into your store and you don’t have the right product then the customer might leave, the lifetime worth of that customer to you could be thousands of pounds.

"Dispensaries realise how important it is to now carry the most popular strains and brands. Whether that’s edibles, concentrates, extracts, flower or anything else, you have to have the best choice that matches what consumer demand is right now. The thing is that it’s a very dynamic industry, so consumer demand patterns change so quickly. New strains become popular overnight, so you have to be able to adjust very quickly, which is why we regularly refresh our data."

Significant advances in data, branding, marketing, products and investment opportunities are propelling the industry forward, but there are still sizeable barriers that need to be overcome by both regulators and entrepreneurs.

"The biggest blocker is regulation, but that is a barrier which is slowly being removed. What is emerging is a very well regulated industry in Colorado. There’s also tax and banking, these are two huge problems that entrepreneurs in the industry are facing," explains Bingham.

"As banks are federally regulated, they’re very wary of knowingly having clients in the cannabis industry. They have to file suspicious activity reports with every transaction, which is very expensive for them to do. I heard one of the largest dispensaries in San Francisco, who has around 150 employees, had to go back to paying employees in cash as the bank just stopped serving them. That creates a lot of danger for people in the industry, an environment where fraud and tax evasion become all too easy when you’re dealing in cash."

Demonstrating true entrepreneurial spirit, many of the latest cohort at CanopyBoulder are looking to find solutions to these problems. One of the standout businesses in the bootcamp, Wurk, provide human resource and payroll infrastructure for businesses struggling to navigate the complicated and ever-changing legal framework.

It’s this sort of professional approach, along with healthy profit margins and improved access to data demonstrating the real impact of cannabis, that will see any stigma slowly evaporate.

"It’s funny, this is my 25th anniversary of graduating from Harvard Business School," explains Bingham. "I recently went to the big reunion event – which is a pretty formal environment, where most guys went into private equity and banking. When I told people what I did I received nothing but praise and encouragement. Not only were these guys supportive of the industry, with some being consumers themselves, they saw the massive business opportunity that was there."